San Diego County Credit Union (SDCCU) says it has already walked away from its proposed merger with California Coast Credit Union after citing a multitude of concerning issues, but the saga has taken a new turn: the refusal of the National Credit Union Administration (NCUA) to approve a deal.
In a formal deferral letter, the federal regulator cited “multiple weaknesses in governance practices and strategic planning” if the merger were to go forward as proposed, under Cal Coast’s leadership, and because NCUA approval is required before the merger can legally proceed, the agency’s decision has cast serious doubt on whether the transaction can move forward at all.
“Due to the relative asset size of the credit unions involved, and areas of concern identified during the review, I am deferring my decision to approve or deny your merger request at this time,” wrote Julie Cayse, regional director for the NCUA, in a Jan. 27 letter sent to SDCCU.
In the letter, Cayse pointed out that for NCUA to move forward with the proposed merger, SDCCU must submit a substantially more detailed merger request that includes not only financial information but also governance structure, executive team composition, board membership, short- and long-term operational goals, projected cost savings and accounting processes.
For its part, SDCCU — which terminated the merger agreement after discovering what it described as sweeping compliance failures at Cal Coast during integration planning — says the NCUA’s stance actually strengthens its case for ending the deal.
“The greatest threat to SDCCU’s financial health would be merging with Cal Coast given Cal Coast’s systemic compliance failures, deficient policies across multiple regulatory areas, and a deeply troubling culture of non-compliance under Mr. Lane’s self-proclaimed dictatorial leadership,” said Teresa Campbell, president and CEO for SDCCU, who was referring to Cal Coast CEO Todd Lane.
In response, Cal Coast has sued SDCCU in an effort to force the merger to proceed, and a judge is expected to rule in April on Cal Coast’s request for a preliminary injunction compelling SDCCU to continue performing under the merger agreement.
Emerging compliance failures
Originally, the two San Diego-based credit unions unveiled plans last spring to merge and create a $13.6-billion institution first dubbed as a strategic combination that would create the 16th-largest credit union in the country.
Instead, the proposed deal has evolved into a dispute over governance, compliance, and leadership culture with the $3.3-billion Cal Coast suing the $9.2-billion SDCCU in California Superior Court, alleging SDCCU improperly terminated the merger agreement.
After the NCUA sent its deferral letter, Campbell said in an 18-page sworn declaration filed Feb. 5 in San Diego Superior Court that the compliance problems the credit union uncovered during integration planning were also significant, prompting it to seek an end to its deal with Cal Coast.
Among the issues cited by SDCCU include that Cal Coast had reportedly been making student loans since 2022 to students at San Diego State University for laptop purchases without complying with applicable student loan regulations.
SDCCU also alleges that the credit union offered different interest rates — sometimes differing by as much as 100 basis points — to similarly situated auto loan borrowers without documented controls to prevent inconsistent or discriminatory pricing.
In addition, Cal Coast call center employees were said to be modifying delinquent loans on an ad hoc basis without reporting the changes, potentially masking troubled loans from credit bureaus and from the NCUA.
Campbell said that the Jan. 27 letter from NCUA confirmed that the merger could not proceed as originally conceived.
“Addressing the NCUA letter would require intensive collaboration between SDCCU and Cal Coast at all levels of both organizations,” Campbell said. “Based on everything that has occurred and that was observed during the integration process, I do not believe such collaboration is possible.”
The issues also go beyond operational compliance.
Kellen Gill, the executive responsible for risk and compliance at Cal Coast, reportedly could not name a single safety-and-soundness regulation under oath and could not identify any written compliance management system, which federal rules require.
At the same time, Lane also became a central figure in the dispute.
SDCCU Chief Risk Officer Carolyn Kissick said in her sworn Dec. 11, 2025 declaration that Lane described himself as a “dictator.”
“During a Sept. 23, 2025 meeting, having been alerted to serious legal risk created under his supervision, Mr. Lane berated me for suggesting increased compliance controls for the combined entity,” she said. “He stated, in sum and substance: ‘I run a dictatorship and I am the dictator. I do not care what you say or what you think.’”
Kissick also pointed out that “the severity, numerosity, persistence, and nature of the failures I and my colleagues at SDCCU observed from the outset of the integration process effectively warned that Cal Coast’s financial reporting was materially deficient — as would be the financials of the merged entity.”
Continuing the integration and merger workflows with Cal Coast would cost SDCCU no less than $10 million in costs, expenses, and lost opportunities, she added.
Cal Coast’s own Chief Audit & Risk Officer Gill also confirmed to SDCCU that Lane would simply do whatever he wanted regardless of what anyone said.
Most recently, SDCCU told the court it must dismiss the injunction being sought by Cal Coast to enforce the merger agreement for several reasons, including that Cal Coast’s non-compliance flows downward from the top.
In fact, says SDCCU, Cal Coast’s non-compliance should be fatal because Cal Coast violated regulations and the violations were and are material.
Former regulator weighs in
David Gibbons, founder of David D. Gibbons & Company LLC, a senior banking expert, former bank regulator, and expert specializing in risk management, compliance, and troubled institution remediation, said the ultimate question surrounding the merger is whether it would serve the interests of credit union members and other stakeholders.
“Whether the merger should proceed depends, at least partially, on stakeholder perspectives and interests,” Gibbons told Financial Regulation News. “Clearly SDCCU and CCCU [Cal Coast] have divergent perspectives and the answer is no for one and yes for the other.
Also at play, he said, are the respective members of each credit union who face the potential degradation of service due to post merger management and cultural upheaval, post-merger operating issues related to integration, and the prospects of a poor risk and compliance culture.
Finally, there’s the NCUA, which based on its letter to SDCCU appears to have significant concerns with strategy, governance, management, and integration execution, he pointed out.
“As a former regulator, I would not look kindly on what would appear to be a pre-merger hostile environment, and the prospects of a dominant leader with a poor record or compliance and attitude,” said Gibbons. “Also, at the end of the day, credit unions exist for the benefit of their members — I see nothing in the picture here that would give me comfort that member benefits will be advanced.”
Compliance issues alone are not necessarily unusual in financial institutions, according to Gibbons, who thinks that the more significant concern is leadership’s attitude toward addressing them.
“Compliance violations happen regularly due to many factors including management and board attitudes toward compliance, business generation motives, inability to execute that results in operational failures resulting in compliance failures,” he explained. “To me what is more important than the number of red flags and violations, is the alleged attitude toward them and toward righting them on the part of the CCCU CEO.”
If the merger were approved, he warned that leadership style could shape the culture of the combined institution.
“Aside from the normal integration issues associated with any merger is the prospect that the combined entity may end up with a domineering CEO with a poor attitude toward risk and compliance,” said Gibbons. “Unchecked, that will eventually infect next tier leadership and staff and overall performance. Not only from a compliance aspect, but potentially from a safety and soundness standpoint.”
The boards for banks have the ability to curb bad behavior on the part of management. Gibbons said that many board members, if not most, are independent, have substantial business and/or risk knowledge, and are responsible and accountable for protecting shareholders and the FDIC insurance fund.
“That is not necessarily the case for credit unions,” he said. “A domineering CEO with a poor risk and compliance attitude, and with little if any governance with teeth is a poor prospect and could be outright dangerous.”
SDCCU’s Campbell has also said that SDCCU and Cal Coast fundamentally disagree about compliance practices and regulatory requirements, and are actively litigating those disputes.
“Cal Coast has stated its position that SDCCU’s compliance concerns are meritless,” she said. “Seeking Cal Coast’s approval for operational decisions under these circumstances is impractical.”
Credit unions are complex, heavily regulated financial institutions, added Campbell, and business decisions often require timely action. Disputes over whether particular expenditures or hires, for instance, require approval and could arise routinely. Operating under these circumstances is not a workable arrangement, she said.
“Worse still, SDCCU and Cal Coast are direct competitors operating in the same market and will remain competitors if the merger does not move forward,” said Campbell. “Under the proposed order, SDCCU would be required to seek court and/or Cal Coast approval before making significant business decisions.”
“This would give our competitors advance notice of hiring plans, strategic expenditures, operational changes, and other business activities,” Campbell said. “We would generally not preview operational decisions for a competitor or allow a competitor to effectively control what acts SDCCU takes.”
Court decision pending
Next month’s court ruling on Cal Coast’s request for a preliminary injunction could determine whether the legal battle continues, though even that decision may not settle the matter.
“I cannot speculate on how a judge may rule. That will depend on the facts before them, their understanding of risks to the credit unions’ members, and California law,” said Gibbons. “I also believe that irrespective of what the judge rules, the NCUA has a sense of their own desired outcome here.”
Even under regular conditions, he added, mergers between financial institutions carry significant risks.
“Under normal circumstances mergers are high-risk propositions as they affect all stakeholders,” Gibbons explained. “Pulling them off so as to benefit most and, at least, cause no harm to others is a huge lift. Merging under less favorable, if not hostile, circumstances will much more likely to cause harm to members, employees, and ultimate success.”